A few transparency advocates heaved a sigh of relief, not when President Ferdinand Marcos Jr. signed Republic Act No. 12009 or the New Government Procurement Act into law on July 20, but when a copy of the law was finally released nine days later.
A provision that transparency advocates said will go a long way in fighting corruption in government procurement was untouched. Marcos did not exercise his veto powers.
It’s the section requiring suppliers, manufacturers, distributors, contractors, and consultants participating in government procurement projects to disclose their beneficial ownership (BO) information.
“It’s a step in the right direction” and a big win for transparency, Emily Manuel, regional manager for the Asia and Pacific Region of international organization Open Ownership, told the Philippine Center for Investigative Journalism (PCIJ):
Open Ownership helps countries fight corruption by generating data on the true owners of companies.
Beverly Besmanos of Bantay Kita also celebrated the inclusion of the provision. She told PCIJ there should also be a new law to require the same disclosure in “all contractual engagement of the government,” especially in the mining sector, which is not governed by the procurement law.
But the fight for transparency is not over. How bidders will disclose the BO information of their companies will be determined in the law’s implementing rules and regulations (IRR).
Groups have called for vigilance against any move to dilute transparency and anti-corruption provisions in the IRR.
“That is something that you need to watch out for,” Manuel said. “Because it’s quite possible to dilute some of the key features that are promised under this new law through the IRR.”
The IRR will define the “leaps and bounds” of the law and could “betray the motivations” behind its passage if the crafters are not careful, said Nepomuceno Malaluan of the Action for Economic Reforms (AER).
The Government Procurement Policy Board (GPBB), which is tasked to formulate the IRR within 180 days or six months from the law’s effectivity, said the process will be consultative.
GPBB said it will launch a microsite for materials on RA 12009 to promote inclusivity and public participation in the IRR preparation. There will be five IRR committees where non-GPBB agencies, including the private sector and civil society groups, can participate in online consultations and submit comments on the draft, it said.
What is beneficial ownership or BO?
The law defines beneficial owners as individuals who either ultimately own, effectively control or dominantly influence the management or policies of a juridical entity.
Beneficial ownership is different from legal ownership, which refers to juridical or natural persons who have legal title to a juridical entity. It also includes persons who have voting shares, voting rights, stewardship roles or control through contracts and partnerships, among others.
Beneficial owners are persons. In many cases, the persons who own and control the companies are the same.
But there are instances when the owners of a company are also companies. Ownership may be hidden behind complex networks of shell companies and the incorporation papers of the company alone are not useful in determining its true owners.
There are also instances when companies are not controlled by its owners because the company entered a partnership or agreement that surrenders control to other parties.
Bidders in government contracts will need to disclose the identity or identities of these people.
Anti-corruption tool
Manuel of Open Ownership said preventing collusion in government procurement is the “biggest benefit” of knowing the BO.
Collusion can happen when companies are formed to bid against each other on paper to create an illusion of competition, she said. “A single-end person can actually form several companies and pretend that they’re all bidding for the same thing,” Manuel said.
“Knowing the beneficial owner can link those companies that are bidding for the same owner,” she said.
Besmanos said the IRR should provide “clear mechanisms” to identify beneficial owners of suppliers and contractors.
“We hear some stories in some LGUs here in Mindanao where the LCE’s families and friends are the contractors (dummies) of catering services and other goods,” she said. LCE stands for local chief executive.
Violators face grave consequences under the law. Failure to disclose the ultimate beneficial owners of the bidding entity is a ground for disqualification in the bidding process.
Submission of beneficial ownership information containing false entries will also lead to blacklisting.
Groups had feared that the BO disclosure would be removed during congressional deliberations. The joke among transparency groups was that there may have been unscrupulous lawmakers who failed to grasp the requirements of the provision when they voted to approve the bill.
Studies have shown links between political dynasties and corruption in the Philippines. There is also no dearth of investigations against dynastic politicians accused of using their positions to embezzle public funds and manipulate public procurement processes to benefit their businesses or their allies.
It helped that the Philippines is a signatory to the 2022 Indo-Pacific Economic Framework for Prosperity (IPEF), groups said.
To advance a “fair economy’’ in the region, IPEF seeks a commitment from member-countries to effectively implement beneficial ownership recommendations.
It is a US-led economic initiative involving Australia, Brunei, Fiji, India, Japan, South Korea, New Zealand and six of the 10 ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam).
Public Registry
The requirement to disclose BO information is stated in Section 82, Article XV of the law.
Standards set by the Financial Action Task Force (FATF) are expected to guide the IRR. FATF standards are intended to identify the corrupt players and sanction evaders, money launderers and tax evaders who hide or launder their criminal property or activities in shell companies or other complex structures as well as trusts or other legal arrangements.
In 2023, the intergovernmental organization leading global action against money laundering issued tougher BO standards.
BO disclosures are already required by the Securities and Exchange Commission (SEC). Manuel said bidders in government contracts may be asked to submit the same BO forms they are required to submit to SEC.
In 2019 the SEC, through Memorandum Circular No. 15, required the disclosure of a company’s beneficial ownership information as part of its general information sheet. The memorandum also provides for the categories of beneficial ownership and serves as the reference for its implementation in the country.
However, the beneficial ownership information that companies submit to the SEC is not available to the public.
“It’s only open to law enforcement agencies and competent authorities with whom the SEC has a data-sharing agreement,” said Manuel.
The SEC could also require more information from the companies, said Besmanos.
A segment of the extractive industry, through the Extractive Industries Transparency Initiative (EITI), has also been required to disclose their BO since January 2020.
EITI included beneficial ownership information in licensing and company registration processes as well as through EITI reporting.
What is not clear, said Manuel, is how the law intends to implement disclosure of relations that aims to prevent conflicts of interest.
The earlier law prevented blood or affinity ties between officers of a bidding company and the head of the procuring agency up to the third civil degree. The new law extends this to include other officers of the procuring agency, members of the bids and awards committee, and heads of the project management office and implementing units.
Manuel said the IRR will need to set clear rules on this provision.
RA 12009 also requires the GPPB to maintain an online registry of beneficial ownership information that will be accessible to the public.
“By allowing for documents to be available to the public, it opens the doors to transparency,” Manuel said.
However, the specifics of the public registry, including its accessibility and the kind of information that will be made public, will also depend on the IRR.
“Some of the limitations is if they will charge [money] for it. Gates to access ‘yan e. And then accessibility ‘di ba, if they will make it so complicated for the public to access data. Hindi rin maganda ang implementation, deprived din ‘yung public of that right,” Manuel said.
Most responsive vs Lowest bid
The disclosure of BO information is just one of the key provisions in the country’s new procurement law.
The law was celebrated for introducing the “most economically advantageous responsive bid” (MEARB), which allows the government to choose bids that offer the best value for money.
This is a major amendment, said Malaluan. MEARB unshackles the government from choosing the “lowest calculated and responsive bid” (LCRB) that could result in government agencies getting low quality items.
“I agree with the motivation behind the change because I also experienced it from being in government. There are challenges imposed by the old rules,” he said.
Under the old law, procurement officers needed to take great care in drafting technical specifications of procurement projects if they wanted to weed out cheap but poor quality options. The new law recognizes “both quality and economic values” of services or products offered, said Malaluan.
Malaluan said the new law could work in favor of the Department of Education, especially in the procurement of textbooks. LCRB means the department only gets to evaluate one supplier – the lowest bidder. With MEARB, the department can compare several offers and “allow the agencies a fit for purpose approach.”
The IRR will be important, said Malaluan. The intent to allow agencies to choose the best offer can be betrayed if the IRR “will not allow discretion in the end,” he said.
But discretion can also be abused, said Besmanos of Bantay Kita. “We reiterate what Hon. [Risa] Hontiveros raised during the interpellation of the law regarding MEARB and LCRB on safety measures that the new law must have in order to ensure that procuring entities do not misuse the flexibility provided under the MEARB and the LCRB,” she said.
The new law also increased the modes of procurement to 11 to allow for greater flexibility in acquiring goods and services.
The old law upholds competitive bidding – inviting multiple vendors to bid for the same material, product or service – as the main procurement modality. So much so that many government officials are afraid to use alternative modes because these are only allowed in highly exceptional cases.
The new law allows the following alternative modes:
- Competitive Bidding
- Limited Source Bidding
- Competitive Dialogue
- Unsolicited Offer with Bid Matching
- Direct Contracting
- Direct Acquisition
- Repeat Order
- Small Value Procurement
- Negotiated Procurement
- Direct Sales
- Direct Procurement for Science, Technology and Innovation.
The new law “removed the all-encompassing language for competitive bidding. And it’s the adaptive and permissive language as to the choice of the mode [that] introduced a new standard for adoption of the fit for purpose approach,” Malaluan said.
Malaluan said it is also important to emphasize “from the perspective of the agencies” the law’s provisions on the professionalization, development of qualifications, standard, competency and certification of procurement. – PCIJ.org